When you register a business in the BIR, it is a requirement that you register and maintain your Books of Accounts. If this is your first time to hear that, this article will help you know and understand what the Books of Accounts are.
WHAT ARE THE BOOKS OF ACCOUNTS?
Books of Accounts are the accounting books where business transactions are recorded. There are penalties if you don’t record business transaction in your books of accounts.
Recording can be done using three (3) formats of books of accounts.
WHAT ARE THE THREE (3) FORMATS OF BOOKS OF ACCOUNTS?
A. Manual Books of Accounts
These method is done using a traditional books you find in a books and office supplies store. Manual Books of Accounts are mostly used by micro and small businesses because it’s the easiest to register in the BIR. Recording is hand written.
You are not required to renew and re-stamp your books to BIR annually. They are only renewed if your books are already exhausted or used.
B. Loose-leaf Books of Accounts
This method is done using spreadsheet like Microsoft Excel. Some companies uses simple Quickbooks for their bookkeeping and just export their reports in Microsoft Excel.
Those who uses this method are required to submit permanently bind loose-leaf forms within 15 days after the end of each taxable year or upon termination of its use.
C. Computerized Books of Accounts
This is mostly used by big companies. This method is done using complex accounting software. Generation of Invoices and receipts are usually computerized.
Those who uses this method are required to submit reports in CD and other requirements within 30 days after the end of each taxable year or upon termination of its use.
WHAT ARE THE KINDS OF BOOKS OF ACCOUNTS?
Regardless of the method you will choose, the books of accounts are composed of General Journal and the General Ledger.
1. General Journal
This is called the book of original entry because this is the first book where the business transaction are recorded. Journalizing is the process of recording in the journal.
2. General Ledger
This is called the book of final entry. In this book, you can see the ending balance of each account you record in General Journal and Special Journals. Posting is the process of recording in the general ledger.
WHAT ARE THE SPECIAL JOURNALS?
Aside from General Journal and Ledger, businesses also use Special Journals. These are multi-column journals that have columns reserved for specific transaction.
These accounting books are prescribed to ease the recording of the business owner or their bookkeeper. The four (4) common special journals are:
a. Cash Receipts
This is one of the books of accounts you use to record all cash received by the business.
b. Cash Disbursement
This is one of the books of accounts you use to record all cash paid by the business.
c. Sales Journal
This is one of the books of accounts you use to record all sales including sales of merchandise on account.
d. Purchase Journal
This is one of the books of accounts you use to record all purchases and disbursements including purchase of merchandise on account.
Transaction which cannot be recorded in the special journal will be recorded in general journal.
ARE BOOKS OF ACCOUNTS IMPORTANT?
1. When you file your Tax Returns, the books of accounts will serve as your basis.
2. When one (1) of your quarterly gross sales/receipts exceed P150,000, you’re required to have your books of accounts audit by an independent CPA
3. When you’re lucky, the BIR can send you a letter requesting to see and audit you books of accounts.
WHAT ARE THE THREE (3) THINGS TO REMEMBER?
If you want to avoid BIR Audit and Tax Penalties, here are the things you need to remember:
1. Register your books of accounts to the BIR
2. Keep books of accounts at the place of business
3. Update your books of accounts regularly.
In addition to that, you’re required to keep you books of accounts at least 10 years.
There you go, I hope that you learn something in this article that can save you from unnecessary tax penalties.
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